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Found-Money Startups

swyx profile image swyx Originally published at swyx.io ・Updated on ・6 min read

I have noticed that startups with the fastest growing revenue actively "find money" for their customers. I think this is something people vaguely understand, but as far as I can tell, nobody's really named it or defined it. Strange, for something so important and lucrative.

I've come to call them "Found-Money Startups".

Definition

  • Found-Money startups only make money if they directly increase the profit of their customers. This can be through cost saving, but more often than not this comes through increasing revenue.
  • Found-Money startups should be plug and play. I should not have to significantly change the way I work or rewrite anything in order to benefit from them. Literally npm install free-money is the ideal.
  • Found-Money startups should offer scalable money. It's great if I get back $10 when I spend $1 on you, but if it's only a onetime deal then it's not much of a startup. When I can ramp it up to $100,000 with good, definitive return month after month, then you can have all my money.

The directness is important. Many startups only indirectly make their customers money - they provide a service, and it is up to customers to figure out how to make money with that service, or to attribute how much revenue was made or how much cost was saved with the service. Is your tool a painkiller or a vitamin? Does adopting Notion or Slack make our company more productive? There's B2B software to track social media mentions, or employee engagement. Maybe that helps us make money?

Who knows?

With found money startups, the cause-effect relationship is so tight that there is no question. Incentives are also extremely aligned. The offer can be risk-free - if they don't make you money, there's no cost. Sign up now!

Because the revenue source is so simple, the marketing is simple too. "What's in it for them?" More money. Spend more, make more. Done.

Pricing is simple. You can charge whatever you like as long as your customer makes a multiple of what you make.

Growth also comes incredibly fast (though it may not be sustainable). Most companies struggle to double their revenue each year. Found Money Startups are the only ones where customers might try you out for $10,000 one month and then ramp up to $100,000 the next because you made them money. (This is often the case with Pay-Per-Click/SEO consultants too)

Finding Money on the Side of Buildings

I first had this insight when hearing about a Chicago(?) entrepreneur who got his start by offering to sell ads for building owners. This kid had no credentials and no assets, but he managed to convince building owners to let him lease out the sides of their buildings for banner ads. They would get free money, and he'd get a cut of what he brought in. The proposition for advertisers was clear too - this was eyecatching outdoor advertising for cheaper than billboards.

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Most business require invested capital to get off the ground. Property, Plants, Equipment in classical accounting. Modern startups might invest heavily in engineering expenses (classed as R&D) before starting to make millions. This kid had neither. Yet in a matter of months he had a multimillion dollar business selling ads on other people's property.

What's more, once his customers saw initial success in a few test properties, they immediately offered up their other properties, and word virally spread, ensuring subsequent triple digit growth.

That's what happens when you find people money. They throw even more money at you right away. Growth is effortless. You don't even try to be viral.

The kid went on to do even more notable things as an adult. I've forgotten the exact podcast (probably one of the early How I Built This episodes) where I first heard this story, or I'd be able to name the guy. But for sure the lesson I took away was that there was good money in finding money for people. (Sounds silly when you write it out like that, right?)

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Examples of Found Money Startups

Here's a growing list I have of "Found Money" startups:

Found Money Marketing

Some companies may not actually be "Found Money" businesses, but they may market their side projects or growth channels as "Found Money" - e.g. Geico's famous ads asking for 15 minutes of your time to save 15% on your insurance. They don't actually know if they're gonna save 15% for you, and they cannot magically save you more money if you spend more on them.

Regardless, the ad works because it promises "Found Money". So perhaps the "Found Money Hypothesis" is good for more than just startup business models.

To drive this point to an inevitable conclusion, found money marketing may also be good for fraud as long as no one looks too closely (and many don't).

Discussion

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liviufromendtest profile image
Liviu Lupei

Isn't this "Found-Money" concept the same thing as ROI (Return On Investment)?
No company would ever spend money on anything if it would not have a good ROI.

For example, I work for a company named Endtest, customers pay money to use our product because it helps them save time and resources when it comes to automated testing.

If they would choose to use free open source libraries to stitch together an internal testing framework, that would consume a lot of time and a lot of resources and it would end up costing them a lot more.

The same thing is available for any B2B solution.

For example, let's say you need to have video meetings.

You can either pay for a Zoom subscription or you can develop your own internal video calling solution with WebRTC, which is free and open source.

But if you develop your own video calling solution, the time and resources that you invest in that endeavor will cost a lot more than the price of a Zoom subscription.

That's why Zoom has a good ROI.

Sadly, a lot of developers don't understand that using something which is free and open source can end up costing more than a paid solution.

My apologies if I didn't understand this concept correctly, please correct me if I'm wrong.

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swyx profile image
swyx Author

FYI, Endtest has gained a bad reputation in my mind for being extremely spammy. all your comments and posts are promoting Endtest. good for you but I'm blocking you and everyone else from Endtest.

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eelstork profile image
Tea

Great post Shawn. Not only the content is interesting but also well written and to the point. Nice!

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swyx profile image
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johnraymon profile image
John Ray πŸ‡©πŸ‡΄

This is a great article! It’s the approach I’m taking for OnlyInsta.com / OnlyInsta.app.

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johnraymon profile image
John Ray πŸ‡©πŸ‡΄

Onlyinsta was a bad idea.

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swyx profile image
swyx Author

oh no! so fast - what happened?

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beingbook profile image
Han BaHwan

What judges 'highest growth'? could you describe the metrics?

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swyx profile image
swyx Author

revenue growth over time, over a relatively short, say 3 or 6 month period, but sometimes it lasts for years